Recommendation 4

The Defence equipment programme is routinely jeopardised by factors that drive inflation in defence projects. Defence projects are often long-term, complex and involve new technologies, which makes them vulnerable to cost inflation. This Committee has highlighted that inflation in equipment projects can result from factors specific to the defence sector; factors which the Department admitted are not fully understood. We therefore urge the Department to develop a better understanding of these factors, which would include: the availability of new and more expensive technology during the development and build phases; the ambition to maintain interoperability with the USA and other allies; the acquisition of leading-edge capability adding to unit costs instead of accepting more utilitarian specifications which would allow the acquisition of more units; relations with contractors who are in competition with each other to develop new technology; and the culture in Commands to have the best possible equipment at the expense of increased numbers of platforms. Recommendation: The Department should undertake a comprehensive study to better understand the drivers of defence costs inflation. This should not merely Defence Equipment Plan 2020–2030 7 be a statistical exercise but should look at attitudes and behaviours within the defence acquisition system, and how commercial realities and competition with other nations drive up costs. It should report the results to the Committee.